1) Long-term economic growth is a term used to describe the

a) More rapid growth in population than of real output

b) Increasing trend in real GDP

c) Falling unemployment rates over time

d) Rising price level over time

2) which of the following is not held constant along a given aggregate supply curve?

a) The price level

b) The payment to resources in nominal terms

c) the level of technology

d) The efficiency of production

3) Suppose the real wage remained unchanged between years 1 and 2, but the nominal wage increased from $20 to $22. What is true about the price level?

a) It fell by 10 per cent

b) It fell by 22 per cent

c) It rose by 22 per cent

d) It rose by 10 per cent

4) Cost-push inflation can be caused by:

a) An increase in aggregate demand which pushes prices higher

b) An increase in aggregate supply which pushes prices higher

c) A high growth rate in real wages

d) Growth in aggregate demand not keeping up with the growth in aggregate supply

5) If the Reserve Bank of Australia sells bonds and securities in the open market, this is likely to lead to:

a) A fall in interest rates and an appreciation of the Australian dollar

b) A rise in interest rates and a depreciation of the Australian dollar

c) A fall in interest rates and a depreciation of the Australian dollar

d) A rise in interest rates and an appreciation of the Australian dollarECON102, Semester 2 2011 3

6) Workers laid off as a result of a recession would be classified as:

a) Structural unemployment

b) Frictional unemployment

c) Seasonal unemployment

d) Cyclical unemployment

7) Assume an MPC of 0.4, and that the government increases spending by $10 billion and at the same time increases net taxes by $10 billion. The effect on output will be:

a) $4 billion

b) $10 billion

c) $16 billion

d) $40 billion

8) If aggregate demand intersects short-run aggregate supply below the economy's potential output level, which of the following sets of policies would unquestionably move the economy back towards full employment?

a) Increase government purchases, increase taxes, and decrease transfer payments

b) Decrease government purchases, increase taxes, and decrease transfer payments

c) increase government purchases, decrease taxes, and increase transfer payments

d) decrease government purchases, decrease taxes, and increase transfer payments

9) If the Australian dollar increases in value relative to other currencies, how does this affect the aggregate demand curve, ceteris paribus?

a) The economy will move down along a stationary aggregate demand curve

b) The economy will move up along a stationary aggregate demand curve

c) The aggregate demand curve will shift to the right

d) The aggregate demand curve will shift to the left

10) Automatic stabilisers smooth fluctuations in:

a) Disposable income

b) Inflationary expectations

c) Interest rates

d) The government budget balanceECON102, Semester 2 2011 4

11) If the economy were in recession, we would expect:

a) Government expenditure to be high and tax revenues to be low, probably leading to a budget deficit

b) Government expenditure to be high and tax revenues to be low, probably leading to a budget surplus

c) Government expenditure to be high and tax revenues to be high, probably leading to a budget deficit

d) Government expenditure to be low and tax revenues to be low, probably leading to a budget surplus

12) Borrowing to pay for long-term capital expenditures makes sense as the benefits are received:

a) Over many years so the burden of paying for them should be spread over many years

b) In the current year so the burden of paying for them should be spread over many years

c) In the current year so the burden of paying for them should be paid in the current year

d) Over many years so the burden of paying for them should be paid in the current year

13) Which of the following is NOT included in the current account?

a) The transfer of migrants' funds

b) Income received on investments

c) An increase in holdings of overseas assets by Australians

d) Exports of goods

14) If the exchange rate changes from 46 Australian cents per euro to 56 Australian cents per euro, the Australian dollar has:

a) Appreciated, since its value has increased

b) Appreciated, since its value has decreased

c) Depreciated, since its value has increased

d) Depreciated, since its value has decreased

15) Other things being equal, the law of diminishing marginal returns states that as the quantity of capital per worker increases, other things being constant, output per worker eventually:

a) Increases at a constant rate

b) Increases at a decreasing rate

c) Increases at an increasing rate

d) Decreases

16) A problem with an active policy approach is that:

a) Wages are sticky

b) Prices are sticky

c) Potential output is unknown

d) There is a cost to unemployment

17) If a contractionary monetary policy is used, then which of the following would be most likely to enhance the effect of the contractionary policy on aggregate demand?

a) Interest rates would increase, leading to an exchange rate appreciation and a fall in net exports

b) Interest rates would decrease, leading to an exchange rate depreciation and a rise in net exports

c) Interest rates would decrease, leading to an exchange rate appreciation and a fall in net exports

d) Interest rates would increase, leading to an exchange rate depreciation and a rise in net exports

18) If borrowers and lenders anticipate that the rate of inflation will be 5 per cent, but instead it turns out to be 3 per cent, which of the following is likely to occur?

a) Borrowers wish that they had borrowed more money

b) Insufficient loans will have been made by lenders to maintain profit levels

c) The real interest rate is higher than expected

d) Lenders wish that they had made fewer loans

19) The Phillips curve illustrates that there is a:

a) long-run negative relationship between the unemployment rate and the inflation rate

b) short-run negative relationship between the unemployment rate and the inflation rate

c) long-run positive relationship between the unemployment rate and the inflation rate

d) short-run positive relationship between the unemployment rate and the inflation rate

20) According to the purchasing power parity theory, in the long run:

a) Exchange rates between any two currencies should be equal all over the world

b) Inflation rates should equalise around the world

c) Interest rates should equalise around the world

d) The exchange rate between two currencies should reflect differences in price levels between those two countriesECON102, Semester 2 2011 6

21) An increase in interest rates affects aggregate demand because it:

a) Leads to a decrease in consumption, investment and government expenditure, which decreases aggregate expenditure and hence aggregate demand

b) Leads to an increase in consumption, investment and net exports, which increases aggregate expenditure and hence aggregate demand

c) Leads to a decrease in consumption, investment and net exports, which decreases aggregate expenditure and hence aggregate demand

d) Leads to an increase in consumption, investment and government expenditure, which increases aggregate expenditure and hence aggregate demand

22) When the short-run aggregate supply curve is steep, then for a given increase in aggregate demand:

a) The increases in real GDP and the price level will be large

b) The increase in real GDP will be relatively large and the increase in the price level will relatively small

c) The increase in real GDP will be relatively small and the increase in the price level will relatively large

d) The increases in real GDP and the price level will be small

23) Demand-pull inflation is characterised by

a) Movement of aggregate supply (AS) up and to the left

b) Movement of aggregate demand (AD) down and to the left

c) Movement of AS down and to the right

d) Movement of AD up and to the right

24) Efficiency wages are paid for all of the following reasons except to:

a) Reduce worker turnover

b) Entice higher-quality workers

c) Increase productivity

d) Abide by the minimum wage legislation

25) In the long-run, how would the solution of someone who favoured an active policy approach to an expansionary gap differ from that of someone who favoured a passive approach to policy?

a) Both the price level and the level of real GDP would be higher in the long run with the activist solution

b) Both the price level and the level of real GDP would be lower in the long run with the activist solution

c) The price level would be higher in the long with the activist solution

d) The price level would be lower in the long with the activist solution